Will surge pricing become the new normal?
For some, "surge pricing," the use of algorithms to automate price increases on products and services in periods of high demand and limited supply, adheres to a basic principle of a free market economy. Others see it as a form of price gouging. Regardless of your point of view, the use of surge pricing appears likely to increase as a growing number of companies in the on-demand economy test its application.
Uber has received the most media attention for its use of surge pricing. The taxi alternative company claims surge pricing helps to improve customer service levels. According to its site, "At times of high demand, the number of drivers we can connect you with becomes limited. As a result, prices increase to encourage more drivers to become available."
Not everyone, particularly riders, are happy with Uber’s use of surge pricing. An app called Cut the Surge, claims to be able to predict Uber’s rate for the upcoming hour. If a warning of a surge comes up on the Uber app, Cut the Surge will tell you when you can expect rates to return to normal.
Sources: Uber, OpenTable
Another company, OpenTable, claims that surge pricing may be the answer for diners looking for a table at restaurants where it is next to impossible to get a reservation. The table management company recently began testing its Premium Reservations service. According to the site, OpenTable diners have told the compnay that they are "willing to pay for last-minute, prime-time reservations at popular restaurants."
Typically OpenTable, which was acquired last year by Priceline for $2.6 billion, will charge an additional $50 for a table of two with Premium Reservations. Getting a table for a party of four will run an added $100.
Cosme in New York City is participating in a pilot with OpenTable to make "a handful of tables" available for late bookers on Friday and Saturday nights. All of the added reservation fees charged by OpenTable will go to Cosme. If the test proves successful, OpenTable plans to roll out its Premium Reservations more broadly.
"As the leader in restaurant reservations, our diner demand and data is unmatched, so we believe we can capture more value for prime-time tables," Vannie Shu, product marketing manager, platforms, content & discovery for OpenTable, told GeoMarketing. "Giving guests without the ability to plan ahead (last-minute business travelers, unexpected celebrations, etc.) the opportunity to be seated will delight those in need of your hospitality. Plus, reaching OpenTable’s most frequent diners, our app users, doesn’t hurt either. The experience for restaurants should be seamless as we integrate this into our leading table management system."
- What is surge pricing? – Uber
- How to never get slammed with Uber surge pricing again – BGR
- Cut The Surge
- Testing, Testing: Get More from your Hottest Seats – OpenTable
- Now Testing: Premium Reservations in NYC – OpenTable
- OpenTable Begins Testing ‘Surge-Pricing’ Type Option For Coveted Reservations – GeoMarketing
Do you see surge pricing being used by more service companies in the months and years ahead? Are there other industries outside of transportation and foodservice that seem tailor-made for surge pricing? Is there a potential for certain types of retailers to use it, as well?